When Activision Blizzard Inc. launched the new “Call of Duty” last month, the video game broke sales records. So why did the Santa Monica publisher’s stock swoon?

Because that same day the company announced that its online franchise “World of Warcraft” had lost nearly 1 million subscribers.

It’s a sign, say some analysts, that investors are worried that Activision puts too much focus on its two flagship games and lacks diversification.

Mike Hickey, an analyst covering video games in the Denver office of National Alliance Capital Markets, said that could be problematic when one of those franchises starts losing customers, as “Warcraft” did.

“They have basically two games that are driving all of their economics and forward growth,” Hickey said. “If that piece of the business is disrupted, it could be meaningful.”

Indeed, news that “Warcraft” has lost subscribers sent the company’s stock into a double-digit decline last month.

Activision has acknowledged the importance of “Call of Duty,” a first-person shooter franchise centered on military battles, and “Warcraft,” a multiplayer online fantasy game from Irvine studio Blizzard Entertainment. In its 2010 annual report, the company noted that the two franchises accounted for about 62 percent of revenue for the year, and acknowledged that as a risk.

Activision reported net income of $418 million last year on revenue of $4.45 billion. That means “Call of Duty” and “Warcraft” brought in about $2.76 billion last year.

Although the company is dependent on those games, concerns about its future stability are overblown, said Michael Pachter, managing director of equity research at downtown L.A. investment firm Wedbush Securities.

“They’re a victim of their success,” Pachter said. “It’s unrealistic to expect that they could come up with something as profitable as ‘Call of Duty,’ but there are new ways to extract revenue from customers by giving them more of what they like.”

A company spokeswoman said no one was available last week to respond to questions for this article.

With a market cap of more than $14 billion, Activision is the seventh largest public company in Los Angeles County.

Winning with ‘Warfare’

Activision released “Call of Duty: Modern Warfare 3” on Nov. 8. The game sold 6.5 million copies, about $400 million in sales, on its first day, breaking the record set last year by its predecessor, “Call of Duty: Black Ops.”

Nevertheless, customers could grow tired of buying a new game for the series every year, said Todd Mitchell, an analyst with Brean Murray Carret in New York.

“It’s very hard to keep a franchise fresh forever,” Mitchell said. “There is a concern about them losing their lead.”

“Modern Warfare 3” is the eighth installment of the “Call of Duty” series, which began in 2003. Before the launch, some analysts were skeptical that it would reach the same success as “Black Ops” because the game faced competition from “Battlefield 3,” a first-person shooter launched in October by Redwood City publisher Electronic Arts Inc.

They were also concerned that personnel changes at the Encino studio developing the game, Infinity Ward, would impact its quality. Infinity Ward, which developed the original “Call of Duty” game and several sequels and is owned by Activision, went through a shakeup last year when Activision fired President Jason West and Chief Executive Vince Zampella.

West and Zampella have sued Activision for more than $36 million in royalties. The company has countersued, saying the pair breached their contracts by meeting with EA while still employed by Activision. The case is scheduled to go to trial in May.

Meanwhile, those who stayed at Infinity Ward teamed up with Silicon Valley studio Sledgehammer Games to develop “Modern Warfare 3” without West and Zampella.

Hickey said the problems at Infinity Ward could have hurt the quality of its latest “Call of Duty” installment. Instead, the new game is getting better reviews than last year’s.

“That could have had a real impact on the sale and overall quality of the game,” he said. “The success is a real testament to the Activision team.”

‘Warcraft’ world

But “World of Warcraft” is not having the same success. Activision announced Nov. 8 that the game, which has enjoyed a devoted fan base since it launched in 2004, lost 800,000 subscribers during the last quarter, bringing the number to 10.3 million.

After the news, Activision shares fell 91 cents on Nov. 9 to close at $13.02. The stock continued to drop, bottoming out at $11.75 on Nov. 25. That’s a swoon of 16 percent, greater than the decline of 10 percent on the Nasdaq during that same span.

Shares have recovered a bit since, closing Nov. 30 at $12.42.

The company attributed the recent decline to a loss of customers in China.

Pachter of Wedbush said investors are worried that the subscriber attrition is a sign of more losses to come. However, he expects the decline to flatten out.

“Investors are afraid, but I think there are 10 million people who will keep playing,” he said.

Hickey, the Denver analyst, said the decline is a sign that the game has peaked and is settling in to a more stable subscriber base.

“Given where they are in the lifecycle of ‘World of Warcraft,’ you have to allow a multiyear decline,” he said. “It’s the nature of the massive-multiplayer online market.”

However, the broader view that the company needs to diversify has been consistent.

“Without ‘World of Warcraft’ and ‘Call of Duty,’ they don’t have any heavy hitters to sustain them,” wrote William Usher, assistant games editor for entertainment website CinemaBlend.com, in an October blog post.

The company reduced the number of games it developed this year to focus on more successful titles and improve operating margin. It disbanded its “Guitar Hero” unit and stopped development on action game “True Crime: Hong Kong” because of slow sales for previous titles in the series.

Mitchell said that having fewer games doesn’t mean fewer successes. Instead, he pointed to several new games as having the potential to become hits. For example, the company launched children’s game “Skylanders: Spryo’s Adventure” in October, and is working with developer Bungie, creator of the blockbuster video game series “Halo,” to create an action game.

“People say that Activision is going to have trouble because they’re too dependent on ‘Call of Duty’ and ‘Modern Warfare,’ but they’re breaking new intellectual properties,” Mitchell said.

Going online

To expand the lifespan of the “Call of Duty” franchise, Activision has launched an online subscription service called Call of Duty: Elite. The idea behind the service was to create a web platform similar to that of “Warcraft” where players could see game stats from competitions against their friends, download extra features, and access the game from their smart phones and Facebook.

Mitchell said creating a community around the franchise will help Activision keep players engaged.

“All they have to do is keep people interested by building these communities around the IPs and they can monetize the customer much more effectively,” he said.

One million paid subscribers signed up for the Elite service during its first six days. But it’s had some problems, including server crashes that have left paid members without access to the site.

Even so, Hickey said that Elite could be what Activision needs to keep players engaged with the “Call of Duty” brand in between major game launches.

“If they could better monetize the online community they’re creating, they could get the bubbling up of another ‘World of Warcraft opportunity,” he said. “They definitely have people’s attention, now it’s just figuring out how to guide that attention into dollars.”

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